Final Regs. Provide Rules for Assessment Limitation Period for Undisclosed Listed Transactions

On
Monday, the IRS issued final regulations regarding the
exception to the general three-year assessment limitation
period for listed transactions that a taxpayer did not
disclose as required under Sec. 6011 (T.D. 9718).

Sec. 6501(c)(10)
contains an exception to the general three-year period under
Sec. 6501(a) in which the IRS may assess tax after a taxpayer
files a tax return. Under Sec. 6501(c)(10), the assessment
period is extended for a listed transaction (which is defined
as a transaction that the IRS has identified as a tax
avoidance transaction) that is not properly disclosed under
Sec. 6011. The period of limitation is extended to one year
after the earlier of (1) the date on which the taxpayer
furnishes the information required for listed transactions
(see below), or (2) the date that the material adviser
furnishes to the IRS, upon written request, the information
required under Sec. 6112 about the taxpayer related to the
listed transaction. Sec. 6112 requires material advisers to
maintain lists of advisees and other information for
reportable transactions, including listed transactions, and to
furnish that information to the IRS upon request.

The
disclosure rules require the taxpayer to complete Form 8886,
Reportable Transaction Disclosure Statement (or
successor form), and file it with the taxpayer’s original or
amended return for each taxable year for which the taxpayer
participates in a listed transaction and file a copy with the
IRS Office of Tax Shelter Analysis. If the transaction becomes
a listed transaction after the date a taxpayer files its
return and before the end of the period of limitations for
assessment of tax for any taxable year in which the taxpayer
participated in the listed transaction, Form 8886 must be
filed within 90 calendar days after the transaction became a
listed transaction.

T.D. 9718 finalizes proposed
regulations issued in 2009 (REG-160871-04) with a few
clarifications. The four clarifications are:

If the three-year period of limitations on assessment
applies and the one-year period under Sec. 6501(c)(10) ends
before the three-year period expires, the assessment period
for the tax year remains open until the expiration of the
general three-year period. This was illustrated in an
example in the proposed regulations but has now been added
to the final rules.

Next, the rules clarify
when a disclosure by a material adviser will be considered a
disclosure. If a taxpayer fails to disclose information
related to a listed transaction, unless a material adviser
furnishes the information in response to an IRS written
request for the list, the one-year period will not begin.
Accordingly, receipt of information from a person other than
the material adviser with respect to the taxpayer will not
satisfy the requirements. Regs. Sec.
301.6501(c)-1(g)(6)(ii)(A) clarifies that, consistent with
the statutory language, except in limited circumstances
related to dissolution or liquidation of an entity that is a
material adviser or in the case of a designation agreement,
only receipt of information the material adviser furnished
will satisfy the requirements for disclosure.

The final rules also clarify that information received
other than in response to a Sec. 6112 request for a list of
a material adviser’s advisees, such as in response to an
information document request or a summons, will not begin
the one-year period.

The last clarification
explains that, if a material adviser furnishes the required
information about a listed transaction but does not
specifically identify the taxpayer who entered into it, the
one-year period under Sec. 6501(c)(10)(B) will not be
triggered for that taxpayer.

The final
regulations apply to taxable years for which the period of
limitation on assessment under Sec. 6501(including section
6501(c)(10) and Regs. Sec. 301.6510(c)-1(g)) did not expire
before March 31, 2015.

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